The Riskalyze Report: Thowing in the Towel on International Stocks

My friends at Riskalyze have offered me the opportunity to see which stocks and funds advisors all over the country are adding to their clients’ accounts and which ones they’ve been selling. Each week I’ll present you with the top three buys and sells and we’ll track how this progresses while trying to figure out what it says about the professional mindset.

This data has been aggregated from across the client accounts of the thousands of advisors who use the software. Most of it comes directly through the third-party custodians where advisors’ assets are held. I hope we can uncover interesting trends for you each week…

Week of November 9th – November 15th 2014:

Winners = top investments purchased by advisors for client portfolios that week
Losers = investments that advisors sold out of in client portfolios that week

Winners (advisor flows TO these investments increased):

• First Eagle Global (SGENX)
• MLP Funds (AMLP, EMLP, MLPDX, MLPFX)
• CASH

Losers (advisor flows FROM these investments increased):

• DFA International (DFISX)
• OakMark International (OAKIX)
• Vanguard Dividend Appreciation (VIG)

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Josh here – are financial advisors throwing in the towel on international equities? The performance spread between the S&P 500 and the MSCI EAFE index is extraordinary right now on virtually any timeframe – YTD, one-year and three-year especially. I can promise you that advisors with global asset allocations are feeling the heat from their less informed clients about the drag from international stocks – so I’m not terribly surprised to see that two of the top three sold-out positions in advisor portfolios are in that arena.

If only someone remember that it wasn’t so long ago that the MSCI EAFE was outperforming the S&P 500 on rolling three-year periods. According to Michael Batnick, my firm’s director of research, foreign stocks outpaced US stocks between September 2003 and December 2008 – a 64-month period where global diversification was a help and not a hindrance.

But recently it’s sucked. The conversations these days are mostly about “why bother?”.

We are all susceptible to the Recency Effect bias and sometimes the easiest thing to do is just give in. For a time.

Will foreign stocks ever outperform the S&P again? Seems impossible right now, which is how markets are designed 🙂

A word about Riskalyze:

In my practice, we use Riskalyze software tools to help assess clients’ true risk tolerance and to test portfolio configurations that match up accordingly. It’s changed our practice for the better, as I explain here.

Check it out today!